Abstract

Islamic banking deines money strictly as a medium of exchange; it has no value
in itself and each note is the same as another banknote of the same denomination.
Because Islamic banking has recent history, not all of their instruments are still fully
created and one such model is tawarruq; model known as “reverse or commodity
Murabahah that operates by borrowing cash based on two separate transactions.
There are two basic types; the irst type implies that an individual buys commodity
from a bank, deferred, which later sold to another person or a bank for money
in order to obtain the necessary liquidity. Another type is “organized tawarruq”
that involves a transaction in which an individual buys commodity from Islamic
bank on credit. It is a kind of standardized types such as metal or wheat. The bank
purchased commodity sells to the client at a higher price with the term of payment
in the future. The client hires the bank as its agent who sells commodity for cash.
The result of this transactions means that the client gets the cash and bank owes
funded amount plus the anticipated return. Many Islamic experts and economists
express reservation under this model, considering that it achieves what Islamic
banking seeks to avoid and it is the interest generated by activities of conventional
banks. Although the model is acceptable from a legal point of Islamic economics,
essentially in a spiritual way it isn’t, since it opens the possibility of creating a
multitude of transactions without creating real value and the possibility of creating
interest. The aim of this paper is to introduce the basics of tawarruq model and its
functioning, to examine its acceptability in terms of Islamic economics, and thereby
contribute to further discussion on the admissibility and the purpose of its use.